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2018-01-25 Midweek Market Update

Perth Mint Blockchain and Bullion Linkage

The Perth Mint has started development work on a cryptocurrency backed by physical gold. Their stated goal is to create a transparent offering that can be bought and sold easily, with all metal tracked on a distributed ledger. This would allow gold backing the crypto to be traced from mine to final consumers.

We think that some marriage of blockchain and vaulted gold would be a “killer app” for gold investors. Being able to see who exactly owns which bar would help reduce the 100+ ounces of paper-to-physical gold that currently exists, and reduce the multiple claims on bars that likely currently exists in large warehouses.

Perth Mint Gold ETF Listing

As the amount of gold held in ETFs has risen to its highest level in almost five years, the Perth Mint has just announced that it is launching a new gold-backed ETF, with all the the ETF shares backed by bullion held by the Mint, a state-owned entity. With gold prices up strongly year-to-date, further geopolitical uncertainty and talk of trade wars is likely to send more investors in search the safe haven provided by gold.

LBMA Gold Tracking via Blockchain

In another attempt to seek synergy between the world’s oldest and newest stores of wealth the London Bullion Market Association is exploring how using blockchain will allow it to track the origins of gold, in part to help ensure that conflict gold or gold from illegal mining operations does not enter LBMA vaults. In our opinion, they would be better off focusing on tracking ownership of each individual bars to halt the practice of multiple claims on individual bars.

Central Bank Gold Purchases Continue at a Torrid Pace

Russia, Turkey and Kazakhstan are the world’s biggest gold bugs, according to a new report by HSBC. Central banks bought more than 414 tons of gold in 2017, compared to only 95 tons in 2016. Increasing their holdings of physical gold allows these countries to better diversify away from the U.S. dollar and reduce their risk of being badly hurt should the U.S. try to employ sanctions against them. As long as real rates stay at a very low level compared to historical standards, the opportunity cost of adding to gold holdings remains attractive compared to other safe haven assets such as bonds.